Now this is something I can get behind. The people giving out the loans must take the risks for the school loans, not the taxpayers. They are making the money on the interest so make them take the risk.
Now, borrowers must prove they meet three criteria in order to offload their student loan debt: lack the ability to repay the loan currently, are unable to repay the loan in the future and made a good-faith effort to repay the loan.
Andy
Do the new BK rules actually change that? If the loans are guaranteed by the government, allowing them to be discharged in BK doesn’t necessarily transfer the risk to the lenders if they still have recourse against the government. Has that changed?
I thought it did albaby, but maybe I am wrong. So you think the government is paying for the bankruptcy?
Andy
If this becomes too popular, nobody in their right mind would give students loans. Instead they will give the loans to the parents. That is, if the parents have income/assets that they would want to protect by making sure they pay down the loans in a timely manner.
I don’t know. I’m not a bankruptcy lawyer, so I’m just going from hazy bar exam prep memories and a little googling. But generally, when there’s a guarantor on a loan, a BK petition filed by the borrower doesn’t affect the guarantor’s obligations to the lender. It just discharges the borrower’s obligations to the lender and to repay the guarantor.
Here, the guarantor is the federal government - so maybe it’s different? They’re the federal government - they could certainly set up different rules for their guarantee that end up with a different result. I don’t know the answer. Just that the discharge of the borrowers’ obligations doesn’t necessarily mean the lender is at risk. That would only happen if the federal guarantee also gets discharged in the borrower’s petition, which (again) isn’t usually what happens.
If people paid for their college costs from parents, savings, and work, like most of us did, 50 years ago, there might be more pressure to constrain college costs, or pressure state (L&Ses) to restore college funding to the level it was at 50 years ago. It’s too easy to sign a loan form, to cover whatever costs the college, and the (L&Ses), want to lay on the students.
Steve
As it should be, or Government makes State colleges and trade schools free for everyone with whatever stipulations, ie B grade average or better. I would be for that also. Let the Ivy league and other private colleges pay for themselves.
Andy
What’s an “L&S”?
Albaby
“leaders and statesmen”
Steve
Leaders and Statesmen
It’s always used sarcastically - they’re like unicorns.
Yes, lots and lots of sarcasm, just like the “thought leader” euphemism.
Steve
What may be different (and does not seem to be addressed in the link above) is that for private student loans - which are not guaranteed by the govt, may be more easily discharged. That would definitely put it back on the private lender.
While I support the ability to discharge debt via bankruptcy, I have to wonder about any unintended consequences of making it easier to discharge this debt. Might this result in higher private loan rates for everyone else? One would seem to think so. Unsecured debt is obviously very risky for a private entity so while this may end up being good for those that suffer a bad situation, it is likely to lead to more pain for everyone else.
Maybe more pain for everyone else but who should bear the pain? The taxpayers or the people taking loans. I think a lot of those loans wouldn’t, and shouldn’t have been given.
Andy
Don’t disagree, but I don’t think private lenders are given discretion to discriminate based on the school.
In order for this to really apply to the party most responsible, student loans need the ability to discriminate based on both the institution of higher learning as well as the course of study.
Perhaps this could lead to such a change but the way the program works currently, the school is the one that tells the lender how much to authorize - which creates no incentive to critically analyze the risk beyond the credit score of the borrower.
Why would the availability - or unavailability - of BK discharge of private student loans shift the “pain” onto taxpayers? Only in the publicly guaranteed sector is there a risk of taxpayers having to shoulder the costs. And honestly, taxpayers probably have to bear more of the pain if you make it easier for students to declare bankruptcy if the government is the guarantor (unless, again, they’re also changing the general rule that the guarantor isn’t released just because the borrower declares BK).
There are 65-year-old parents who signed for the loans. Retirement is not an option.
I think you misunderstood me Albaby. I don’t think the government should guarantor the loans. I think whoever is giving the loans should take the risk whether it is private or public. In order to fund the public going to school’s? That should be by free state college or trade schools. How that will be managed will have to be negotiated.
Andy
Well, the public policy objections to that are pretty straightforward. College graduates are among society’s biggest winners, economically. Nearly all people who go to college - especially public colleges - can afford to bear the cost of their own education over time. And they’re generally wealthier and have higher incomes than people who don’t go to college. That argues against shifting the cost of college education away from the recipients (the students) and onto the general public.
We have government guarantees of student loans to resolve a market failure caused by imperfect information. It’s very, very difficult to underwrite long-term personal debt without collateral against people with no income history. There’s no realistic way for many (most?) applicants to accurately communicate their long-term repayment risk to a lender. College students overall are a good lending risk; any particular tranche of the market might not be. So we have the government guarantee the loans so that people whose parents aren’t rich can go to college.
While it’s true that eliminating the former principle (people should generally pay for their own public college education because nearly all of them can) would eliminate the need for most loans, that’s a really difficult trade-off to justify for taxpayers - who will end up paying vastly more for college education (collectively) under a “free” college program than they eat in defaulted student loans.
There is a strong argument for public education as a public good. We largely agree that K-12 education is a public good that should be paid for by the general public. Most western countries support college education as a public good. The US used to support college education as a public good with cheap in-state tuition and even cheaper community college. We have moved away from that replacing tax dollars with loans.
Do you really feel the current US system of public support of education with free K-12 and unaffordable college is ideal? Should we impose large tuition at public high school as well, leading to loans or dropouts? Why stop there? Why not gut public education entirely?
I’d challenge the idea that we have “unaffordable” college as a very general matter. After all, our post-secondary educational attainment rates are among the highest in the world, even compared to countries that have government-paid tuition (which is not exactly the same as “free,” because there are other expenses to college). And, again, most people who get a college degree will earn significantly more over their lifetimes and repay their school loans. We ask them to pay for college, rather than have everyone pay for college, because they generally have a much greater ability to pay for college than the people who don’t go.
Which is why we don’t do the same for high school. Secondary education is universal and mandatory. Everyone goes, so it’s much more equitable to put the burden of paying for it onto the public at large. 90% of Americans graduated high school - nearly all of them attended some high school. Whereas about 38% of Americans graduated college.
That in no way means that our system of financing college education is perfect. But the general idea that college graduates should pay for the college education they choose to consume results in a far more progressive (in the literal, taxation sense of aligning costs to ability to pay) system than having 100% public funding of such systems. Which results from the fact that the overwhelming majority of Americans don’t graduate from college - which is completely different from high school. If college was near-universal and mandatory, there would be no justification not to publicly fund it. But as a benefit that most Americans don’t get to participate in? It’s harder to make that case.